2022 (9) TMI 442 - AT - Customs

100% EOU - re-export of finished goods imported after repacking and labelling - non-fulfilment of export obligation - demand merely on the presumption that the appellant have not achieved the minimum value addition of 20% - HELD THAT - This demand is bad and illegal in view of the admitted facts on record, particularly, the communication of the learned Commissioner, Thane to the Member CBEC dated 23rd August 2004, wherein, it has been admitted that there have been error in the calculation and the appellant have achieved min. value addition of 20%, and therefore have complied with the condition. Accordingly, the demand of Rs. 33,00,23,408/- along with the penalty imposed is set aside. Non-application of mind - Demand of Rs. 64 lakhs approx - it is urged that the learned Commissioner have erred in holding that the appellant is liable to pay duty on capital goods, without considering the fact that Serial No. 1 of Annexure 1 to the SCN, relates to import of capital goods which were used to repack/re-labelling the imported finished goods listed at of Annexure II to the SCN - HELD THAT - Admittedly the appellant pursuant to import have brought the capital goods to the factory (in the bonded warehouse). Such goods have admittedly, not been removed by the appellant and are still lying under bond, under the control of the Customs Department. In spite of several requests by the appellant for de-bonding, the Customs Department have not cared to allow the de-bonding, which is wholly arbitrary. It is established law that duty can be demanded on the capital goods from an EOU on the event of de-bonding. Accordingly, the demand with penalty is set aside - the respondent Commissioner are directed to allow the de-bonding of the capital goods and the appellant shall be liable to pay duty on the depreciated value, as per the applicable rate on the date of de-bonding. There being no liability to pay duty on import of the goods (for re-export) under the provisions of the Central Excise Act r/w the Customs Tariff Act, the penalty imposed under Rule 173 Q(1) of Central Excise Rules is bad and accordingly set aside. Appeal allowed.

Summary

Issues Involved:
1. Non-fulfillment of export obligation and value addition requirement.
2. Demand for customs duty on imported capital goods.
3. Penalty imposition under Rule 173 Q(1) of Central Excise Rules.

Issue-wise Detailed Analysis:

1. Non-fulfillment of Export Obligation and Value Addition Requirement:
The appellant, a 100% EOU, was accused of not fulfilling the export obligation of achieving a minimum of 20% value addition on imported goods. The appellant imported finished goods and consumables, repackaged and relabeled them, and re-exported them. The Commissioner initially confirmed a demand of Rs. 33,00,23,408/- for non-fulfillment of this obligation. However, it was later clarified through a letter dated 23rd August 2004 from the Commissioner, Thane, to the Member CBEC that an error in calculation had occurred, and the appellant had indeed achieved the required 20% value addition. Consequently, the Tribunal set aside the demand and the corresponding penalty, recognizing the appellant's compliance with the value addition requirement.

2. Demand for Customs Duty on Imported Capital Goods:
The appellant imported capital goods for setting up a factory but could not commence production due to the disintegration of the USSR, which was their primary export market. Despite several requests, the Customs Department did not allow de-bonding of these goods. The Commissioner demanded Rs. 64,08,325/- as customs duty on these capital goods. The Tribunal found this demand unjustified since the capital goods were still under bond and had not been removed by the appellant. It was established that duty could only be demanded upon de-bonding. Therefore, the Tribunal set aside the demand and penalty, directing the Commissioner to allow de-bonding and calculate duty on the depreciated value as per the applicable rate on the date of de-bonding.

3. Penalty Imposition under Rule 173 Q(1) of Central Excise Rules:
The Commissioner imposed a penalty under Rule 173 Q(1) of the Central Excise Rules, claiming the appellant had not fulfilled the conditions of the notification. However, the Tribunal found that no excise duty was attracted under the provisions of the Central Excise Act since the goods were imported for manufacturing under bond for export. The penalty was deemed unwarranted and was set aside.

Conclusion:
The Tribunal allowed the appeal, setting aside the impugned order with consequential relief to the appellant. The demands for customs duty and penalties were found to be unjustified based on the facts and circumstances, including the appellant's compliance with value addition requirements and the arbitrary refusal of de-bonding by the Customs Department.